Power to the outsiders: External hiring and decision authority allocation within organizations

Research Summary This study examines the relationship between external hiring and the allocation of decision authority within organizations, and how they interact to affect organizational change and innovation. We test our hypotheses using panel data for a nationally representative sample of businesses in Canada. We find that the practice of external hiring of managers and high‐skilled nonmanagerial employees predicts greater decision authority allocated to each respective level of the hierarchy. Reallocation of authority is positively moderated by the strategic priority of (a) workplace reorganization for managerial hiring, and (b) new product development for nonmanagerial hiring. We also find evidence of related associations with workplace reorganization and product innovation. The findings suggest that decision authority allocation is essential to effectively utilize externally acquired human capital. Managerial Summary This study examines how the effectiveness of hiring managers and high‐skilled nonmanagerial employees from outside the firm is related to how much decision authority they are granted. We show that for both types of employees, external hiring predicts greater decision authority allocated to each respective level of the organization. For managers, external hiring predicts a greater likelihood of organizational change when more decision authority is granted. Similarly, for high‐skilled nonmanagerial employees, external hiring predicts the development of more novel innovations when more decision authority is given. Overall, the results suggest that hiring talent from outside the firm by itself is not sufficient to expect benefits to the organization—instead, firms must also empower outside hires with the authority needed to translate their knowledge into performance.